Navigating the Social Performance Jungle

One of my first projects as a Kiva Fellow has been to work with MCC Mol Bulak Finance as they further develop their program of data gathering to quantify social performance. From my perspective as a lender, I imagined that measuring social performance would be a primary concern in the development of the microfinance industry, but in fact social performance management (SPM) is just emerging in the last several years as a best practice. In many ways this is because the lack of either a standardized methodology or ideology in regards to what constitutes social performance. One of the attractive features of Kiva.org is that Kiva vets microfinance institutions (MFI), seeking out organizations that adhere to multiple bottom lines. While some argue that the simple act of supplying credit to individuals without access gives clients financial freedom and should be given blanket encouragement, numerous examples of profiteering and mismanagement have marred the image of microfinance over the past several years. A ballooning belief that microfinance is the panacea to poverty alleviation has been closely echoed by a ballooning in client over-indebtedness. This is due at least in part to a lack of adequate client protection principles(see SMART Campaign). These problems fuel the argument that unfettered microfinance is merely a tool to spread debt burden to the poor while sucking profits from marginalized groups. So how can one measure and present particular MFI social performance in a transparent way?

A simple internet search for social performance management turns up a plethora of organizations that are working towards or claim they have found the answer to this riddle;

Organizations such as Microfinance Centre, Oikocredit, Grameen Foundation, Microfinanza, Microfinance Information Exchange, Microfinance Credit Rating International (M-CRIL), MicroSave, and Cerise, just to name a few. This does not include the various networks such as SEEP, the Social Performance Task Force, Social Performance Management Resource Center, or Social Performance Management Network, each working on issues surrounding SPM.

Don’t get me wrong, I commend many of these groups for their efforts to create tools and methodologies to measure MFIs social performance. For-profit and non-profit, governmental or non-governmental, internal or external, each applies a slightly different approach while many of them cooperate to co-produce products.

However, take a minute to look at this from the perspective of a MFI. Pursuing any of the tools on this daunting list carries substantial cost (one more set of costs to factor into the running interest rate conversation);

Acquiring information from clients on poverty before and after a loan cycle adds time and cost for clients and loan officers

Changing information management systems to accommodate this data, if possible, costs time and money

Producing regular reports takes expertise and costs money

Providing data to unregulated audits can be a sizable risk to MFI’s who fear that competitors might alter data such as interest rates for a higher rating

From a business perspective it is quite risky to realize all of these costs when no clear winner has emerged as the industry standard. Tools such as the Grameen Foundation’s Progress out of Poverty Indicators or USAID’s Poverty Assessment Tool provide many countries with easily collectible data that can be used to assess poverty of clients before and after doing business with a MFI. Unfortunately these tools are only available in about 50 countries at this point, not including Kyrgyzstan. Further, they typically utilize $1.25 a day (or specific country equivalent) or use national poverty line data, each of whose accuracy as a poverty assessment tool is debatable. If an external rating agency is used there are many to choose from and they each utilize unique processes. Paying for a PlaNet Social Rating today doesn’t preclude one from having to pay for a Microfinanza Social Rating tomorrow, especially if the goal is to benchmark MFIs regionally. While Kiva has chosen Cerise’s SPI tool to measure MFI social performance, will another funder choose MIX Market’s SPS or MicroFinanza? What will the investment in time and money be to keep each of these tools accurate and up to date with current credit, savings, and insurance data?

Looking past all of these questions, there is the point brought up in detail on Kiva Fellow Betsy McCormick’s August blog . Even if one of these tools work to perfection, the reality is that microfinance does not exist within a vacuum. Therefore, to form conclusions about the ‘impact’ made by microloans, microsavings, or microinsurance requires that one know that this change would not happen otherwise. This adds innumerable additional obstacles that might never be overcome.

Yet the optimist in me knows that even the sloth makes it through the jungle (albeit at a top speed of 4 meters a minute). Taking that analogy one step further, that same sloth is able to pick up a host of symbiotic friends along the way. I hope that whatever SPM sloth makes it out of the jungle first will provide the social oversight that the microfinance industry needs to remain a formidable tool to combat poverty.

I would love to hear your thoughts on social performance management, poverty measurement, and microfinance. Also please see these great Kiva Fellow blog posts -1- -2- regarding social performance!

Charlie Wood (KF13) is in his first placement as a Kiva Fellow with Mol Bulak Finance in Kyrgyzstan. Join the Mol Bulak lending team and lend to entrepreneurs in Kyrgyzstan!

4 Comments

Charlie, excellent post. The SPM field is crowded! Thanks for compiling a list of the various players.

I’ve heard complaints from several MFIs about the confusion, the cost and the pressure to report varying sets of data to so many different organizations. You make a great point about unregulated audits in an increasingly competitive field. The tone of these surveys can be somewhat presumptuous, too. I’ve had moments where I felt slightly uncomfortable asking a president, one with 15+ years of microfinance experience, questions such as “Do you have a code of ethics?”

I’d love to hear why Kiva chose to go with CERISE versus another organization. I gather it has to do with the fact that questions in the CERISE SPI tool sync up with Mix Market SPS questions.

It is a very new field, and like you, I’m excited to see how/if it eventually standardizes.

Regarding social impact, it’s been exciting to see organizations in the Philippines that are collecting annual Grameen Progress Out of Poverty Index (PPI) data on borrower income, housing, children’s schooling, etc. They’re using it primarily for the initial assessment, to gauge the poverty level of new clients and ensure that they are targeting the appropriate communities. But they’ve also started to track the economic improvement over time of their clients, individually and in aggregate.

The data is really valuable. While it may not be possible to draw conclusions on the impact of microloans (vs. microsavings, broader development initiatives, etc.), you *can* see movement out of poverty. It’s a great complement to the anecdotal evidence.

2.kivacharlie | 10 December 2010 at 02:34

Thanks for the comment Casey.

I would love to hear what kind of data is coming out of end of cycle and multiple cycle clients. I am working on getting a similar program running here in Kyrgyzstan, gathering income in addition to various self designed indicators.

I would also be interested in learning more about the Kiva-Cerise decision. I would guess it has more to do with the fact that Cerise is free than its compatibility with SPS. I recently tried to complete an SPS review based on a Cerise SPI and it was not nearly as simple as I would have thought.

3.Julie | 7 December 2010 at 11:06

Great post, Charlie! You bring up a lot of interesting points about the challenges of SPM. I think it`s important to remember thought that SPM does not attempt to nor claim to measure impact.

4.kivacharlie | 7 December 2010 at 19:09

Thanks Julie! I agree with you regarding impact. As opposed to going through that difference in depth, I hope readers go to Betsy’s great post (which I linked) to read more about this important distinction. That said, whatever it’s measuring it’s a complicated endeavor.